Missing the Economic Big Picture
BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.”
With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching. In the United Kingdom’s Brexit referendum, “Little Englanders” voted to leave the European Union; and in the United States, Donald Trump won the presidency because he convinced enough voters in crucial states that he will “make America great again,” not least by negotiating very different trade “deals” for the country.
Let us orient ourselves by considering what the economic-policy moon looks like today, particularly with respect to growth and inequality. For starters, technological innovation in areas such as information processing, robotics, and biotechnology continues to accelerate at a remarkable pace. But annual productivity growth in North Atlantic countries has fallen from the 2% rate to which we have been accustomed since 1870 to about 1% now. Productivity growth is an important economic indicator, because it measures the year-on-year decline in resources or manpower needed to achieve the same level of economic output.